Cash or Credit?

Have you ever played a game of monopoly with Credit Cards? I haven’t. The old classic version I play is with monopoly money. Even the Electronic Banking edition that includes cards are treated as debit cards, not credit. Why is it that almost every (and I say almost because I personally have never came across one) board game on the market define the winner as the one who acquired the most money or stuff? Where are the games where you take out loans to buy things? You know, the game where the winner is the one who has the most payments per turn… and if for some reason you don’t get paid that turn you get behind and have to borrow more! The sad reality is that it isn’t a game… it’s real-life for too many of us in America.

Have you ever stopped to ask yourself why the various banks and credit unions advertise so much? They spend so much money trying to convince you that they’re “your friendly neighborhood bank”. That’s a bunch of bull. Those institutions are businesses and they exist for 1 reason: to take your money. Everywhere I drive I see billboard after billboard of banks promising me that I too could be the happy, proud owner of something today with interest as low as such and such. You see, if this culture wasn’t absolutely obsessed with having the newest, best and shiniest everything the day it’s released the loan industry wouldn’t exist like it does today. I’m not saying that banks are evil and you should keep your money in a shoebox in a wall in your house. The point that I’m trying to make here is that there is absolutely no need to finance everything we can place our hands on just because we have to have it.

Steph and I fell for this trap. We got lured in by the credit card reward points. Before we bought our house last September, we were spending only cash. We weren’t doing anything with credit cards. This system worked really well and somehow magically money started building up quicker and quicker in our bank account. Last October, I remember standing at Cabela’s and listening to an employee tell me “Well, Cabela’s is a store of wants, not needs. If you have yourself budgeted out and you are going to pay those bills anyway, why not put them on the card and build points. That way when you come back here you’ll have money to spend on us.” I hit that credit application like a largemouth swallowing a minnow… only I didn’t see the hook. 10-15 minutes later and our brand new credit cards were printed and we were ready to shop including a $25 sign-up bonus!!! We checked out and left Cabela’s staying mostly within the amount we wanted to spend. The problem was we still had cash with us and we now have a shiny new credit card! As we went throughout the rest of the trip, anything we were going to spend cash on, we just put on the Cabela’s card. We were a little hesitant at first, but it became easier because you know “we’re going to buy it anyways, just put the money back in the bank and pay it off”. The first sign of trouble was the fact that even though we only took $300-$400 to spend on the trip we had close to double that on the card by the time we looked at the statement for the trip. We bought things that we literally could not have purchased had we only been spending cash. This pattern continued for almost a year. We would budget and then slip past it because “it’s just a one-time thing”.

That brings us to today. Today, we carry cash. Something amazing happens when you don’t have enough cash. You don’t buy it… and life goes on. Odds are by the time I got home, I’m not even thinking about what it was that I couldn’t buy anyways. We carry $20 folded up and hidden on us for the “just in case” times that we’re in town and we really need something or there is an emergency. I’m honestly not sure what type of emergency could happen where you have to purchase something right at the instant. At today’s gas prices, I’d have to be 300 miles away from home to not be able to get back home on $20 worth of gas. $20 is enough for several people to eat if spent wisely. We have made the choice not to finance the things in our life anymore whether it is a loan or a credit card. There is no reason in our eyes to give the bank any more of our hard earned money.

Finally, the last thing that we noticed was the pain of spending cash versus the numbness of using credit. I remember when I took out a loan for the Honda CR-V a few years ago (that we now have a clean title on) sitting at the desk signing the papers and calling the bank. In about 2 hours, I spent over $15,000. I remember not even feeling much then… I just knew I was getting a new vehicle. I like the vehicle, don’t get me wrong, but I felt almost NOTHING when signing those papers. They were just numbers on a piece of paper. If, years later and many lessons learned, I would have reversed things and said “Ok Jason, you have to save up $15,000 and pay cash for this CR-V, or you can’t afford it” I would have freaked out because $15,000 is a lot of money to a recent college grad. Looking from that perspective, I would have just taken a couple thousand and bought a decent car outright with no payments because I could have easily have done that. What we have noticed is that when you have to pay cash you feel like you are giving something up… because you are and it’s painful. Even the terminology associated with both types of spending are different. You “run up” a bill or “add charges” on a credit card, but you “empty a bank account/wallet/envelope” when you spend. I’ve noticed this myself when shopping. When using a credit card, there is absolutely no difference in my head between swiping to buy a sandwich and swiping to buy a washer and dryer (both of which I’ve done…). There is pain associated with handing over cash however. A purchase is a give and take arrangement. When paying cash, you have the pain of giving up something (money) counterbalanced with the pleasure of gaining something (product/service). When paying with a credit card, the pain of giving up something has been numbed because as humans we don’t manage our future selves very well. It is very unwise to create situations today that your future self has to fix. When the pain of spending is numbed, what is there to inhibit future spending? If you use only credit cards to make purchases, I challenge you to spend only cash for 1 month. During this time, keep track of your receipts and if you’re like us your spending will decrease.